Will Indonesia overtake Thailand as the automotive manufacturing center of Southeast Asia? Thanks to increased investment from overseas carmakers, government incentives and a growing domestic demand for vehicles, many think so.
Thailand has traditionally been the country of choice for international manufacturers. Despite its own large middle-class customer base and strong production figures (1.64 million vehicles in 2010) it faces new pressure from rising costs and a new government-set minimum $10 daily wage for workers. Companies produced a total 650,000 vehicles in Indonesia and sold 764,000, but forecasts predict both numbers could top a million by 2013.
The Jakarta Globe reports:
Indonesia is already expecting more than $1 billion in investment in the automotive sector starting this year. Nissan recently announced a $250 million expansion plan; Suzuki has announced an $800 million expansion; Chrysler a $100 million expansion; Daihatsu just carried out a $246 million expansion; and BMW a $12 million expansion. India’s Tata also expressed interest in building a production base in Indonesia.
Peugeot and General Motors have also announced plans to assemble vehicles in Indonesia. The government also intends to provide tax breaks for investments over Rp1 trillion (US$117 million), though no formal arrangement has been made yet.
Indonesia’s auto manufacturing base is in Bekasi and Karawang, near Jakarta and the government-set minimum wage of $8 may see Thailand-based companies chase lower costs. As always, Indonesia’s infrastructure inadequacies will be an issue and the country would need to address them before it could become a serious global export leader, an analyst said.
source & article: The Jakarta Globe
Indonesia is considering tax holidays for major foreign direct investors, targeting new and existing businesses in an attempt to bump the country’s FDI up to a total Rp240 trillion (US$28.2 billion) by the end of 2011.
Finance Minister Agus Martowardojo said details of the plan were still being discussed, but would probably feature 5-10 year tax breaks for investors in the base metals, telecommunications equipment, oil refinery, petrochemicals, machinery and renewable energy industries.
The new plan would also cover businesses which had been in operation less than a year. Projects such as a $6 billion joint venture by South Korea’s POSCO, a $4.5 billion petrochemical complex by Honam Petrochemical Corp (also of South Korea) and a $8-9 billion oil refinery from Kuwait Petroleum Corp were said to be waiting for an announcement on foreign investor tax breaks before going ahead.
Foreign direct investment (FDI) into Indonesia in Q2 is already up 21% on the same period last year, thanks mainly to the mining sector. The government is also mulling plans to give tax holidays to smaller investors employing 100-300 people, determined to take Indonesia’s economy into the global Top 10 by 2025 and making much-needed improvements to the country’s infrastructure.
Indonesia’s upstream gas industry regulator BPMigas has approved 10 major projects worth US$4.7 billion in investments over the next three years, claiming that in future, gas will dominate the energy industry rather than oil.
The Jakarta Globe reports all 10 projects would produce gas but one would produce both gas and oil, delivering a total of 1,750 million standard cubic feet per day (mmscfd) of gas and 20,000 barrels of oil per day (bpd). The two largest projects would be operated by the country’s biggest gas producer, France’s Total E&P Indonesie.
Indonesia has seen oil production fall in recent years as its wells have aged, though this has coincided with a boom in gas production which saw the country beat its target of 7,758 mmscfd by 15%. This year’s target of 7,769 mmscfd was reached in the first half of 2011 alone. Indonesia’s oil and gas industry contributed Rp240 trillion ($28.1 billion) in non-tax revenue in 2010.
Much of the gas produced will be gobbled up by domestic power plants and industry, which have been hungry for new finds to fuel Indonesia’s recent growth. State-controlled gas distributor Perusahaan Gas Negara currently has the price at $1.80 mmscfd, but BPMigas is negotiating to raise that to $5.50 in an attempt to boost state revenues.
source & article: The Jakarta Globe
Indonesia’s economy could probably cope with a sudden outflow of ‘hot money’ from its economy but should still be wary of risks presented by such bubbles, said the government.
Bambang Brodjonegoro, The Finance Ministry’s head of fiscal management, said his country should minimize hot money scenarios, or short term investors chasing quick profits on the country’s fast-rising economy. Channeling investments into long-term FDIs (foreign direct investors) and government bonds was preferable to achieve stability and growth.
Foreign investors have become fascinated with so-called ‘emerging’ economies in the past few years as growth opportunities in the developed West have dried up and countries like China, India and Indonesia have boomed. Indonesia’s premier market index, the Jakarta Composite Index (JCI) has risen 6% this year to 4,130.80 and its currency, the rupiah, has increased its value by 5.5% against the US Dollar, to Rp 8,491.
The government may well be getting its wish, as foreign sales of Indonesian government bonds have also risen 31% to Rp 248 trillion (US$29 billion) with 15 year bonds yielding an attractive 9%. The Finance Ministry said foreign investment could reach 40% of all bond holdings after the government sells a further Rp 40 trillion by the end of this year.
Indonesia has suffered in the recent past from rapid foreign capital flight, once during the Asian Crisis of the late 1990s and less severely after the 2008 global financial crisis, which still devalued the rupiah. With the effects of both crises still looming large in memory, fears of hot money and moves to curb short term investments are common across the region.
source & article: The Jakarta Globe
Google has plans to expand its operations in Indonesia with a potentially large investment. There is speculation the company will spend anywhere between US$100 million and $1 billion, with Indonesia’s Investment Coordinating Board (BKPM) optimistic the amount will be larger than Google has invested in other ASEAN nations.
Google’s chairman Eric Schmidt met this week with Indonesian Vice President Boediono and high level government ministers to set out the proposals. Google is eager to begin its Indonesian expansion as soon as possible, but is apparently still seeking clarification over online advertising regulations, security, and government involvement in the country’s obligatory local data centers.
Schmidt was in Bali this week as the keynote speaker at the ASEAN Regional Entrepreneur Summit 2011 and was quoted as being surprised by the amount of independent business activity in Indonesia. He said the country’s business environment was very similar to the USA in terms of interconnectivity, market homogeny and large population.
He also met with members of the Indonesian Association of Young Entrepreneurs, where he reportedly told them a reduction in government intervention would speed up Google’s plans to establish an Indonesian base.
Entrepreneurship is a hot topic in Indonesia this week after the Global Entrepreneurship Program Indonesia (GEPI) event in Bali. This article in the Christian Science Monitor adds strength to the BBC’s earlier claim that Indonesia is the best place in the world to be an entrepreneur in 2011.
It’s not Indonesia’s politics or established structures that created this environment, though. In fact, entrepreneurs there seem to thrive despite excessive regulation, poor access to finance and inadequate physical infrastructure. Instead it is Indonesia’s unique cultural environment: a young population, many tech-savvy and with overseas education, leading the way. Young entrepreneurs are looking at their country and trying to solve its problems piece by piece with the resources available.
Indonesia is embracing modern methods and techniques to interact. The country is already home to the world’s second largest Facebook population and its third-largest on Twitter. There’s a proportionately large number of mobile internet users and around 700 active tech start-ups, with a new one each week.
The United States is doing what it can to support the entrepreneurial wave in Muslim-majority countries, and it is Indonesia that has been quickest to make the most of it. The Global Entrepreneurship Program is a US State Department initiative funded in part by USAID and Indonesian partners, and last week’s GEPI event drew at least 11 major US-based angel investors.
source & article: Christian Science Monitor
Small Indonesian start-up Go-Jek is getting plenty of coverage today after winning a US$10,000 prize in the Global Entrepreneurship Program: Indonesia. The company, which uses ‘ojeks’ (motorcycle taxis) as courier drivers, also accepted donations from a prominent US entrepreneur and is looking into further partnerships with foreign companies.
Click here for a CNN Video report on Go-Jek
Indonesia’s cities, especially Jakarta, have become notorious for traffic gridlock in recent years, as the booming economy puts more vehicles on the roads than current infrastructure can handle. Short of a helicopter, the best way to beat traffic jams is on the back of a motorcycle, and there are plenty of people offering the back half of their saddle for a reasonable price.
Go-Jek took the concept of ojek service and made it more reputable with a bright green branded image and reliable drivers. In operation since February 2011, they take passengers and will courier any package that can be carried on a motorcycle. As well as being cheap, the company offers a decent and much-needed income stream to Jakarta’s legions of motorcycle riders.
The Jakarta Globe has an interview with 27 year-old co-founder and chief executive Nadiem Makarim, who founded Go-Jek in February 2011 with partners Brian Cu and Michaelangelo Moran. The company now has seven full time employees, over 200 regular drivers, 80 pick-up points across Jakarta with over 600 unique customers and 50-60 jobs a day. The founders plan to use their new fame and investment to drive a large expansion over the coming year.
The Global Entrepreneurship Program Indonesia (GEPI) held a showcase of Indonesian startups in Bali from 22-24 July, attracting interested angel investors from the US and around the world. Organizers said the response was “beyond expectations”.
Longer-term investment inflows into Indonesia are replacing riskier short-term investments, a condition showing more confidence and more favorable to economic growth.
According to The Jakarta Post, Bank of Indonesia (BI) data shows foreign direct investment (FDI) increased from US$2.48 to $2.9 billion in the first quarter of 2011, a 17% rise. At the same time, the trend was reversed in shorter-term foreign portfolio investment (FPI) went from $6.1 billion to $3.56 billion.
BI spokesman Difi A. Johansyah said investment loans rose 29% on a year-on-year basis as of May 2011, and would build Indonesia’s economic capacity for growth without negative impacts, like economic overheating. Increased production capacity would ensure ample supply to meet demand, mitigating inflation.
The trend will move even further towards FDI and longer-term investments should Indonesia achieve investment-grade rating from Moody’s, Fitch Ratings and Standard & Poor’s, enabling influxes from large foreign institutional investors. Indonesia’s central bank also recently revised the country’s growth forecast for 2011 from 6.4% to 6.8% on improved prospects for investment and exports.
source & article: The Jakarta Post
Indonesia could exceed projections and grow up to 6.4% this year, says another banking report, while adding its voice to cautions that economic reforms must accelerate in order to do so. The country won’t see super growth of 8-9% without infrastructure and manufacturing industry development, continued land reform and increased government spending.
This report comes from UK-based Standard Chartered Bank (StanChart) and is the latest in a string of calls for Indonesia to improve its economic foundations to achieve its potential. Only 5% of US$145 billion in infrastructure projects earmarked for President Susilo Bambang Yudhoyono’s first term (2005-09) have been realized, and government spending was a deficit of 1.5% of GDP, less than the 1.8% or $14.5 billion. Even that is an improvement on 2010′s 0.6% despite a budget target of 2.1%, according to the Jakarta Globe.
The World Bank agreed with StanChart’s claims, keeping its growth projections at 6.5% for this year and next, and adding that “poor infrastructure was “one of the biggest obstacles to firms operating in Indonesia.” The Bank’s chief economist Justin Yifu Lin said Indonesia’s destiny was in Indonesians’ hands, and that with more government discipline it could replicate other Asian countries’ emergence from agricultural to developed economies and join the world’s top 10.
source & article: the Jakarta Globe
Japanese equities firm Nomura has released a glowing report on Indonesia through its local subsidiary there, saying “this country cannot be ignored.” Its abundant natural resources, young and large population, and decade of reforms are all factors contributing to Indonesia’s current and future prosperity.
It was Nomura Indonesia’s first research report, and the company is interested in setting up a Jakarta brokerage to capitalize on a country which “finds itself in the tail winds of some of the world’s most dynamics economies” and also expressed confidence Indonesia would attain investment-grade sovereign debt rating by the end of this year.
There were the oft-repeated calls for more spending on infrastructure and further reforms to attract investment. The report listed 10 points or ‘development signals’ which needed to happen for Indonesia to reach 8% economic growth, which included opening the service sector to foreigners, passing a land acquisition reform bill, further eradicating corruption and developing the financial sector.
source & article: the Jakarta Globe